Driving and Restraining forces of International Business

Driving factors

The important forces driving globalisation are as follows:

1. Liberalisation:  One of the most important factors which have given a great forward thrust to globalisation since the 1980’s is the formation of universal economic policy resulting in liberalisation of economy in many countries.  The immediate result of liberalisation in globalisation of business.  Now many business firms can involve themselves is international trade as the restrictions imposed by various countries is highly restricted under GATT/WTO.
2. MNC’s: The companies which have taken a complete advantage of trade liberalisation caused under GATT/WTO are MNC’s (Multi – National Companies).  Sony, Philips, Coco Cola, Pepsi, Procter & Gamble, etc are some famous examples for MNC’s.  These companies combine their resources and objectives to achieve profit in globel market.  According to the world Investment Report 1997, there were about 44,500 MNC’s in the world with nearly 2.77 lakhs foregin collaborations.  Hence MNC’s is an important factor inducing Globalisation.
3. Technology: Technology in a powerful driving force of Globalisation.  Once a Technology is developed, it soon becomes available every where in the world.  (for example) A hospital in the USA performs the required diagnostics on patients say an X – ray or MRI or C.T Scan.  These diagnostic tests represent technology in medical field.  In the next three minutes, a radiologists in Bangolore, India receives the scanned images from USA.  He then sends his report to USA.  This is called as teleradiology.  The entire process, from the time the patient was admitted, has taken Just 20 minutes.  The cost of this work is 30% lower in India compared to the USA.  In short, long distance on – line services made possible by the technological developments have given a forward thrust to globalisation.
4. Transportation and Communication revolutions: Technological revolution in several spheres, like transport and Communication, has given a great impetus to globalisation.  The Microprocessor in computers has created the flow of information from one part of the globe to another not only fast but also cost effective.  It has played a pivotal role in reducing space and time.  It has made world in to a global village.  Microprocessors coupled with satellite, optical fibre, wireless technologies, world wide web have made this ‘World in to a global village.  The consumers/ customers has become more global.  By sitting in front of the computer and logging on to world wide web the consumer can download any type of information from any part of the world.  Flow of information is business.  It determines profit.  Hence technology is a strong driving force for Globalisation.
5. Product development and efforts: The immediate impact of increase of Technology is the growth of new products due to innovation.  The fast technology hastens product obsolescence.  This has made many firms to invest heavily on R&D activities with cross – border alliances .  These companies have to stay in business and survive competition.  In order to achieve this, many companies have crossed their borders and have tie – ups to update their products through research and development with foreign companies.  This causes globalisation.
6. Rising aspirations and wants: Because of the increasing levels of education and exposure to the media, aspirations of people around the world are rising.  They aspire for everything that can make life more comfortable and satisfying.  If domestic firms are not able to meet the wants, they would naturally turn to the foreign firms  to satisfy their aspirations.  This promotes Globalisation.
7. World economic trends: The world economic conditions are changing fast.  There, is a great difference in the growth rates of economies/ markets between developing nations and developed nations.  In developed nations the economies have become stagnant, due to saturation on the otherhand, the developing nations are experiencing tremendous growth rate in various business sector.  Cheap labour, high investment in research and development, improvements in technology are some of the factors which have driven the developing nations towards achieving high growth rate in business.  Hence it is very common for the developing nations to have a strong international trade links with developed nations.  Thus difference in world economies between nation causes gobalisation.
8. Regional Integration: Nowadays many countries are joining hands together to promote free and fair international trade across the borders.  They are forming separate trade blocks.  European Union and North American Free Trade Agreements are two such classical examples.  This promotes globalisation.
9. Leverages: Leverage is simply some type of advantage that a company enjoys by conducting business in more than one country.  A global company can experience three important types of leverages.
10. Experience transfers: The experience that a company gains by doing business in one country can be effectively transferred to some other country if the particular company does business on global scale.  This is called experience transfer (For example) Cocacola first developed a strong marketing strategy to tap tea and coffee market in India.   In 2002 it became a success.  From this experience, it then joined hands with Mc Donald’s for marketing hot beverages.  The Georgia Gold brand was thus born and it was first launched in Delhi and Mumbai.  This brand is now available in all Mc Donald’s outlets throughout the country.  The success of this business in hot beverages with Mc Donald’s promoted Coca-cola to enter into ice-tea and cold coffee Marketing business in 2003.

Another classical example of experience transfer is provided by Hindustan Lever Limited.(HLL).  The occurrence of Iodine Deficiency Diseases (IDD) is very common in developing countries.  This disease can be easily prevented by taking micro quantities of iodine along with salt.  The salt thus produced is called as iodised Salt.  This new concept of iodised salt was produced by HLL in India.  HLL has now successfully introduced the concept of iodised salt to other countries like Kenya and Tanzania.  The experience gained by HLL in marketing iodised salt in India has made the company to successfully market the same product in other African countries.

11. Scale economies: The art of cutting down the cost of production is called as scale economies.  One major cause for scale economies is technology breakthroughs.  Many companies are now heavily infesting in R&D in an attempt to reduce the cost of production.  They are attempting to produce cheaper and more reliable products. (For example).  The replacement of vaccum tubes by transistors and subsequent development of printed circuit boards greatly reduced the labour cost required to assemble radios, T.V’S and tape recorders.  By these technological changes the cost of production of T.V sets greatly reduced and production of TV sets greatly increased. Philips are producing more than 3 billion TV sets now in order to stay in business.  So to market such huge volume of production of T.V sets, Philips needs global application of business.

12. Resource Utilisation:  Another strength of global company is its resource utilisation.  It can now successfully outsource its resources globally thereby making better utilisation of resources.

Restraining forces On Globalisation

There are also several factors which restrain Globalisation trend.  They are

1. External Factors
2. Internal Factors

External Factors: These are government policies and controls which prevents cross-border business.

Internal Factors: These are collection of factors that exists within the organisation that prevents Globalisation.  One such factor is called as management myopia or near sightedness.  The company with an aim to make immediate profit engage itself in short-term plan and target local markets for business.  This is called as management myopia.  This acts against Globalisation of business.